The prospects of SoFi Technologies (NASDAQ:SOFI) have been gaining steam throughout 2024. The fintech company has now delivered three straight quarters of profitability, along with a growing membership cohort.
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Shares have been responding in kind, having increased 74% since hitting a low mark at the beginning of August.
With the Fed finally cutting interest rates for the first time since 2020, an investor known by the pseudonym Noah’s Arc believes that things will continue looking up for SoFi well into the future.
“As more consumers seek to refinance existing debts and explore new borrowing options at lower rates, I think SoFi will benefit from an uptick in demand for their loan products,” the investor opined.
Noah’s Arc highlights that SoFi is well-positioned to take advantage of cheaper borrowing rates, given its declining loan delinquency rate and the strong credit profile of its customers. Additionally, the investor observes that SoFi’s student loan division – historically weaker than its personal loan sector – has declined by 3% year-over-year.
However, it’s not just the improved lending prospects that give Noah’s Arc cheer, but rather new product offerings such as the Directed Share Platform (known as DSP2.0).
This DSP2.0 platform is a “big deal,” writes the investor, since it will allow companies to better streamline the distribution of shares to both employees and customers when executing an IPO.
“DSP2.0 means SoFi is trying to spread their exposure away from just loans and into the fee side of the banking business,” says Noah’s Arc, adding that this wedge product should help SoFi get into the lucrative business of helping companies go public.
While Noah’s Arc acknowledges that SoFi’s forward P/E ratio of 89.93 is significantly higher than the sector median of 12.53, the investor argues that its price-to-sales basis of 4.39 is much closer to the sector median of 2.99.
“I think the company should trade at a roughly 60% premium to the sector median Price/Sales ratio to price in the upside the company has from their strong loan book, new IPO innovations and improving margins,” the investor asserts, estimating this would translate to nearly 28% in additional gains.
“The tailwinds are getting stronger,” Noah’s Arc concludes, giving SoFi a Strong Buy rating. (To watch Noah’s Arc’s track record, click here)
Wall Street, however, remains divided. With 5 Buy, 6 Hold, and 3 Sell ratings, SoFi currently holds a consensus rating of Hold (i.e. Neutral), and its 12-month average price target of $8.27 suggests a ~25% downside potential in the year ahead. (See SoFi stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
